A Texas financier has purchased the bankrupt Etta restaurant group for $4 million, with plans to expand the Chicago brand nationwide.
Johann Moonesinghe, 41, CEO and co-founder of Austin-based restaurant fintech startup inKind, completed the acquisition April 16, according to court filings, setting the table for Etta to pay off its secured creditors, emerge from bankruptcy and focus on its acclaimed flame-kissed fare.
“Etta is a phenomenal concept,” said Moonesinghe, who was in Chicago Monday visiting the original Etta Bucktown restaurant. “I think it’s highly scalable, great food, wood-fired cooking. Our intent is actually to grow Etta as a brand.”
Launched in 2018, Etta’s hearth-centric menu of pizza, grilled meats and other offerings was an instant hit, spawning far-flung spinoffs. But more recently, the small restaurant group has been embroiled in an internecine ownership battle and financial struggle.
The restaurant group under former owner David Pisor accumulated millions in debt as it operated two Etta locations in Chicago, standalone outposts in California and Arizona, as well as Aya Pastry in the West Town neighborhood. Etta shuttered the Culver City restaurant near Los Angeles in December and abruptly closed the River North location in January.
Pisor sought Chapter 11 protection Jan. 18 for Etta Scottsdale, adding the Chicago Etta restaurants and Aya Pastry to the filing Feb. 1 in a Delaware bankruptcy court.
The Bucktown and Scottsdale Etta restaurants have remained open during the bankruptcy process, as has Aya Pastry, and all three locations are making money, Moonesinghe said.
But Etta owed about $1.8 million to Wintrust Bank, the senior secured lender, and $1.3 million for a 2017 Small Business Administration loan. Pisor’s restaurant group also owed significant unsecured debt, including about $1.8 million to inKind, Moonesinghe said.
“I actually gave him more money in January, which obviously I wouldn’t have done if I knew he was going to file for bankruptcy,” Moonesinghe said. “But it kind of happened really fast.”
A tech entrepreneur who previously created a restaurant incubator in Washington, D.C., Moonesinghe moved to Austin and launched inKind in 2017. The innovative financing model supplies capital to restaurants in exchange for food and beverage credits that are sold directly to customers.
Restaurants get upfront cash with no debt, diners get 20% back on future meals when they use the app, while inKind gets $9.99 in monthly subscription fees from customers, as well as a markup on the food and beverage credit.
The exterior of the Etta restaurant on W. North Avenue in Chicago on April 29, 2024. Johann Moonesinghe, CEO and co-founder of the Austin, Texas-based restaurant startup called inKind, purchased the Etta restaurant group out of bankruptcy. (Terrence Antonio James/Chicago Tribune)
The platform has raised $180 million in funding for about 1,700 restaurants to date, Moonsinghe said. It has also generated increasing revenue for inKind, which brought in $47 million in 2023 and is projected to hit $200 million this year, he said.
“We’re growing very quickly,” Moonesinghe said.
Moonesinghe co-founded inKind with his younger brother, Rajan Moonesinghe, 33, who was killed in a police-involved shooting outside his Austin home in November 2022.
While inKind does not own and operate restaurants, Moonesinghe has taken the plunge through a side gig, recently opening The Guest House in Austin. As a creditor with $1.8 million on the line, he decided to pursue the Etta group through a bankruptcy auction.
On Feb. 2, Chicago-based restaurateur John Leahy made a $600,000 stalking horse bid for the restaurant assets, setting a ground floor for other investors to step up and buy Etta. Leahy also agreed to make a $140,000 loan, if needed, to cover payroll and other expenses.
The $4,050,000 offer by inKind was determined to be the highest bid April 5, and the sale closed April 16, according to court filings.
“We obviously got the price materially up, which will get a really good result for the creditors,” said Matt McClintock, a Chicago attorney representing Etta in the Chapter 11 bankruptcy filing.
McClintock said Wintrust, the senior secured lender, would likely be paid in full, while unsecured creditors would also receive a share of the sale proceeds.
Etta was formerly part of the nearly 10-year-old Maple & Ash restaurant group. Pisor sued his former partner, James Lasky, during an acrimonious split in 2022. A settlement agreement in January 2023 resulted in Pisor getting the Etta and Aya Pastry restaurants, while Lasky kept the Maple & Ash steakhouses in Chicago and Scottsdale, which are two of the top-grossing restaurants in the country.
Investors are engaged in an ongoing lawsuit against Lasky’s Maple & Ash management company, alleging misappropriation of restaurant funds, including more than $7 million in Paycheck Protection Program loans received during the pandemic.
The Etta restaurants are not party to that lawsuit, but the group struggled financially after spinning off under Pisor, according to the court filings.
In his inaugural 2018 review, then-Tribune food critic Phil Vettel extolled Etta’s wood-fired cooking, pizzas, pastas and salads served in a relaxed, neighborhood setting.
While Moonesinghe has ambitious growth aspirations for Etta restaurants in “lots and lots of markets,” job one is shoring up the existing locations.
Reopening Etta River North, however, may not be in the cards. Moonesinghe said he is attempting to negotiate a lower rent for the location at 700 N. Clark St., which opened in 2020 but saw its lunch business fall off amid the diminished post-pandemic downtown landscape.
Chicago office buildings are still at 55% of pre-pandemic occupancy levels, according to the latest weekly report by Kastle Systems.
“We’re working with the landlord to figure out if we’re going to keep the lease or not,” Moonesinghe said. “And we haven’t made that decision yet.”
Etta has about 150 employees between the three open restaurants. Making sure the employees are paid on time after snafus delayed checks during the bankruptcy is a priority, Moonesinghe said. Beyond that, he intends to immediately “bring people back up to salaries that make sense,” even if it affects short-term profitability.
Moonesinghe said he also wants to reinvest in the brand to make some changes and updates in preparation for rolling out Etta’s “approachable” neighborhood concept nationwide, a potential outcome that seemed off the table when the year began with closures and bankruptcy.
“We’ve obviously got to stabilize the ones that are open and make sure that they’re doing okay, but after that, I think it’s a nationwide expansion,” Moonesinghe said.
rchannick@chicagotribune.com
